Gold and energy should rebound as well

REBOUND

Investors must be breathing a sigh of relief. The rebound last week has taken some pressure off what has been the worst decline since the 2000-02 high tech/dot-com collapse. More importantly, we believe it signals at least a temporary end to the collapse. But is it the absolute end? Probably not, but relief rallies can be quite impressive.

There is the old saying of “sell in May and buy in November”. It is now November. Is it the time to buy? Well, according to the Stock Trader’s Almanac November is the best month of the year for the S&P 500. Since 1950 there have been 39 up Novembers against only 18 down Novembers. And in an election year, which this is, the S&P 500 puts in an above-average up performance. The stars appear to be aligned and we would agree.

We wouldn’t blame if investors could be forgiven for having had a nervous breakdown through
this collapse. It ranks right up there with the worst bear markets. Ned Davis Research Inc.
recently highlighted the worst bear markets since 1900 (Institutional Hotline – October 28, 2008). We noted in our Technical Scoop of October 13 that the two-week collapse that got underway on September 29 and ended October 10 was comparable with the two-day collapse of October 28 and 29, 1929 and the one-day panic of October 19, 1987. While those latter two were impressive because of their fierceness in a short period, this one was just as fierce even if spread over several more days.

S&P 500 STRATEGY: STAND ASIDE (for definitions of terms see end of report)

- Low made on October 10 has thus far held.
- Closed over the 20 day MA but we need to build value above that level.
- Last time we closed over the 20 day MA we also quickly ran into the50 day MA which acted as very stiff resistance.
- 50 day MA currently near 1100 and that is prime target for this rebound
- Indicators turning up with positive divergences on the daily charts.
- Indicators on weekly charts still in deep oversold territory with no positive divergences
- Leaves open the probability that once this rebound is completed we have more downside to go.
- This could be wave 4 of a five wave down move with a 5th wave to come to complete the third wave to the downside.
- If this is a 4th wave correction then a 5 wave decline tells us that this is not a large ABC but merely the third wave of a larger degree.
- A correction now of larger substance would tell us that it was a huge ABC down move from the October 2007 highs and we should now embark a more substantial correction. Unfortunately we will not be able to determine that until we see the nature of this coming correction.
- VIX Indicator has fallen from its recent record high levels but remains above the 1997, 1998, 2001 and 2002 highs.

TSX INDICES

It was a week of reversals as the TSX Composite after putting in new lows for the recent move closed up 5 per cent on the week. Every sector made reversal up moves although a couple Financials and Healthcare failed to get into positive territory. Even the horribly maligned TSX Venture Exchange managed an up week proving that some of the junior mining stocks have some life in them after all.

Besides the TSX Composite seeing new lows the TSX 60, the TSX Venture joined them. This meant that all of the indices saw new lows. But only three sub indices saw new lows including the Financials, Metals and Mining and Consumer Discretionary. But mostly the story of the week was the reversals seen giving us some hope that a bottom might be in.[read more...]

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• Gold and energy should rebound as well
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